A mix-up in its property leasing arrangements has caused the shirt maker Hawes & Curtis to be £361,348 out of pocket.

The posh tailor - which celebrates its centenary this year and counted Edward VIII and Earl Mountbatten as customers - lost its tax tribunal case to reclaim VAT following a company restructuring when it transferred its shop leases to a separate company, Low Profile Properties Limited.

Its new owner Touker Suleyman made the move in a bid to offer landlords a more reliable covenant. The First Tier tribunal heard that in theory, Hawes & Curtis paid rent to the new company, which then passed it on to the landlords.

The court heard that when Suleyman bought the company in 2001, Hawes & Curtis Limited was on the verge of bankruptcy and had "considerable financial liabilities". The company was, at that point, the lessee of 23 Jermyn Street but the landlords, the Crown Estate Commissioners, would only permit the business to be continued there if a new lease was granted to a lessee with a more reliable covenant.

Low Profile Properties Limited (LPP), a company in Suleymans' control, was then suggested for the purpose and a lease of the shop was granted to it on 15 February 2002.

Under existing UK laws, a company can reclaim all the VAT on its rent, but in this case, as the lease company had not registered, HMRC said it was not charging VAT and therefore there was no sum to be reclaimed.

Tribunal judge Malachy Cornwell-Kelly said: 'Since LPP was not at the material times registered for VAT and had not opted to tax property rents, it could not pass on the right to deduct tax on the rents to the taxpayer company.

'We much regret having to reach a conclusion that the essentially technical failures in the property leasing arrangements in this case result in a substantial liability for the taxpayer which could have been avoided, but as we explained more than once in the hearings the tribunal has no jurisdiction to do other than apply the law. The appeal therefore cannot succeed.'

Hawes and Curtis - founded by Ralph Hawes and Freddie Curtis - has around 30 retail units across the UK including its flagship store in Jermyn Street, London.